The swashbuckling Alexandre Dumas coined the phrase “cherchez la femme” (literally: look for the woman) that has haunted French culture ever since. In the run up to the French Presidential election it is generally agreed that, had Dominique Strauss-Kahn not fumbled in the wrong pocket of his bathrobe for the gratuity for the chamber maid of his New York hotel room, he would now be a shoo-in to the Elysee Palace and the rest of Europe would be nodding approval at the election of a former head of the IMF. Instead, Europe is aghast at the prospect of an old-style left-wing candidate (more of that nonsense below) who is about as exciting as a stale baguette and, whilst by all accounts of high intellectual ability, brings recollections of Lyndon Johnson’s comment about that other President-by-mistake, Gerald R Ford – “He cannot fart and chew gum at the same time”.
But, however daft and outdated many of Francois Hollande’s policies are, and however unlike Maurice Chevalier and Alain Delon this slightly owlish chap is – judging by the two women in his life, there has to be some magnetism somewhere. Although he seems to have never got round to paying for a wedding licence, the mother of his four children is none other than the delectable Segolene Royale who is best remembered for losing the presidency the last time to little Sarkozy. Not satisfied with his lot, he started up with a drop-dead-gorgeous Paris Match journalist two years before he finally split up from Royale and it is Valerie Trierweiler who is expected to become First Lady (or First Mistress, or whatever they call girlfriends in the Elysee Palace).
Among Hollande’s policies are: the renegotiation of the latest Eurozone treaty which is what has led European leaders from Merkel to Cameron to refuse photo-ops with him; the batty idea to return the retirement age to 60 from 62; and, battiest yet, a proposal to tax people making over € 1 million at a new 75% rate earning him the nickname “Monsieur 75%”.
The background to the 75% top rate is not economics. In 2012 everybody knows that punitive rates (and that does not even take into account wealth tax and social taxes that get dumped on top) do not bring in significant revenue. No. Mr Hollande is out to take revenge on the rich, especially the demonic financial sector- as he speaks you can hear the cart rattling into the Place de la Concorde, the hapless aristocratic occupant being pelted by the rabble as he approaches his doom at the hands of Madame La Guillotine.
Apart from the effect on the incentive to work, mad tax rates on the highly paid simply cannot work in the European Union. Shortly after making his madcap announcement Hollande traveled to London to canvass the 300,000 plus French living there ( London is the 6th largest French city). The French no longer buy left wing panic mongering about life beyond France’s borders, normally accompanied by Gitanes smoke and the fruity aroma of un bon vin rouge; instead they master English and go abroad.
The one policy that might have prevented a wholesale decamping from Gaul is the imposition of an Exit Tax – the crystallization of a capital gains tax liability on assets on the day of departure irrespective of if, and when, the asset is disposed of and the capital gain realized. The European Union has been playing with this concept for years – most recently in the November 2011 European Court of Justice decision in the National Grid Indus case. The problem with exit taxes is that they tamper with a basic freedom of the EU – The Freedom of Establishment . On the other hand, the EU is concerned not to deny members the right to a balanced allocation of taxing rights (territoriality). As such, the Court considered the imposition of an immediate Exit Tax as not “proportionate” – instructing that, if an exit tax is to be imposed, the assessee should have the option to pay the tax at a later date when the asset is realized.
The French government, in fact, prophesied this situation when advancing new exit tax legislation in 2011. The legislation applies to shareholdings in companies, does not require immediate payment if breaking residence for another EU country and – in the event that the asset is not sold within 8 years – eliminates the liability. As one commentator noted, the new exit tax does not appear to have had any effect on slowing emigration.
Of course, the peculiarities of the French election system could see Mr Hollande crowned but unable to enact his manifesto. If the elections to the National Assembly, a month after the second round of the presidential election, return a right wing majority (the current composition is heavily tilted to the right) , the Fifth Republic will enter into its fourth period of Cohabitation – a President and Prime Minister from opposing parties sharing government. Mr Hollande has already proven himself a master of Cohabitation – cohabiting successfully with Ms Royale and Ms Trierweiler – so he is well placed to make a go of things at the national level.